There has been another twist in Britain's phone hacking scandal, with the revelation that former News Of The World editor Andy Coulson received money from the paper while working for Britain's Conservative Party.

According to the BBC, Rupert Murdoch's News Corp gave cash and benefits to Coulson several months after he became the party's director of communications in 2007.

Coulson was forced to resign as an aide to prime minister David Cameron last year after allegations emerged that he was involved in phone hacking while working for the paper.

He was arrested earlier this year on suspicion of being involved in phone hacking.

The BBC says Coulson received several hundred thousand pounds from News Corp as part of a severance package that ran in instalments until the end of 2007.

He also received benefits such as health care for three years and kept his company car, the BBC said, quoting sources.

Labour MP Tom Watson says the new information raises questions about the relationship between Mr Cameron and the Murdoch empire.

"This man was David Cameron's spin doctor, and there was News International, run by Rupert Murdoch, giving payments that nobody knew about to him," he said.

"I do think it was appropriate that people knew what the terms of the deal were when he left and went to work for the Conservative Party and I think there will be a lot of raised eyebrows in parliament."

A four-year-old letter from a reporter who went to jail in 2007 over phone hacking, never intended for publication and written as part of an appeal against his dismissal, was released last week, stating that hacking was talked about openly at the newspaper until Coulson banned any reference to it.